The euro appreciated sharply vis--vis the U.S. dollar today as the single currency tested offers around the US$ 1.5965 level and was supported around the US$ 1.5755 level. The common currency established another new lifetime high on account of eurozone economic data that were released and increasing speculation of additional monetary easing from the Federal Reserve. It was reported that U.S. March industrial production rose 0.3% m/m and was off 0.5% q/q while capacity utilization printed at 80.5%. Also, U.S. March headline inflation was up 0.3% m/m and 4.0% y/y. These data evidence the difficult position the Fed is in having to manage a slowing economy, credit market dislocations, and ailing housing market simultaneously with ongoing elevated inflationary pressures. Other data released in the U.S. today saw March building permits fall 5.8% to 927,000 while March housing starts were off 11.9% to 947,000 units. In eurozone news, EMU-15 March consumer prices were up 3.6% y/y from 3.3% y/y in February, significantly above the ECBs ceiling target rate of 2.0%. On core basis, inflation was up 2.0% in March from 1.8% in February. The common currency also moved higher on news that U.S. investment banking giant Merrill Lunch will announce a Q1 loss of US$ 6 billion+ tomorrow. Traders are also shorting dollars ahead of additional earnings reports from JPMorgan Chase and Wells Fargo. Germanys economic institutes see 2008 GDP growth around 1.8% while German March final CPI was up 0.5% m/m and 3.1% y/y. European Central Bank member Garganas today said The short-term outlook (in the euro zone) for inflation isn't satisfactory. Inflation is likely to remain at elevated levels for the coming months and is likely to moderate to the 2% level only very gradually. The balance of risks to the short-term global outlook remains tilted toward the downside. Meanwhile, inflation remains strong mainly because of oil and food prices. In this environment, the greatest contribution that central banks can make is the firm anchoring of medium- to long-term inflation expectations. ECB member Tumpel-Gugerell was similarly hawkish saying Looking ahead, the annual harmonized index of consumer price inflation rate is likely to remain significantly above 2% in the coming months, moderating only gradually over the course of 2008. Euro bids are cited around the US$ 1.5345 level.
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